The opinion of the court was delivered by: JAMES MORAN, Senior District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff First Magnus Financial Corporation (First Magnus)
brought this action against defendants MVP Appraisals and
Consultants (MVP Appraisals); Omega Financial Enterprises, Inc.
(Omega); Alliance Title Corporation (Alliance Title); Guarantee
Title & Trust Corporation (Guarantee Title); and individual
defendants Mykolai Ponchko; Leszek Dobrowski; Katarazyna
Kielczyk; and Maya Jordan, for multiple claims arising out of an
allegedly fraudulent real estate transaction. In its original
complaint plaintiff alleged seven counts. Counts I-IV are common
law fraud claims against Ponchko, Dobrowski, Kielczyk, Jordan and
MVP Appraisals, and count V alleges these defendants conspired to
defraud plaintiff. Count VI is a breach of warranty and
representations claim against Omega. Count VII alleges Alliance
Title and Guarantee Title breached their title policy.
In an amended complaint plaintiff added three additional claims. Plaintiff
brought two of the claims, count VIII for negligent misrepresentation and
count IX for bad faith pursuant to 215 ILCS § 5/155, against both
Alliance Title and Guarantee Title, while the third claim, count X, for
violation of the Illinois Consumer Fraud Act, 815 ILCS § 505/1 et seq., is
alleged only against Alliance Title. Alliance Title now moves to dismiss
all the claims alleged against it and Guarantee Title moves to
dismiss count VIII. Both motions are granted.
The following facts, taken from First Magnus' complaint, are
for purposes of these motions accepted as true. In June 2002,
First Magnus, a mortgage company headquartered in Tucson,
Arizona, entered into an agreement with Omega, a mortgage broker
in Chicago, Illinois, under which Omega originated loans to be
funded by First Magnus. Soon after they formed their agreement
Omega sent First Magnus closing documents for a loan to Mykolai
Ponchko for the purchase of a residential property on the south
side of Chicago. Ponchko had submitted a loan application to
Omega on June 5, 2002, seeking $175,500 to purchase a two-flat
building at 1216 S. Avers. On the application Ponchko reported
that he worked for a building company and had a net worth of
$115,000. The closing documents for Ponchko's loan included an
appraisal of the property at 1216 S. Avers. In the appraisal,
dated May 5, 2002, Maya Jordan, an employee of MVP appraisals,
stated that the two-flat building was in very good condition and
valued the property at $195,000. Guarantee Title, as an agent for
Alliance Title, issued a title commitment*fn1 to First
Magnus for the property at 1216 S. Avers. The title policy stated
that Leszek Dobrowski and Katarazyna Kielczyk owned the property
as of June 4, 2002, as tenants in common.
Based on the loan application, appraisal and title commitment,
on July 8, 2002, First Magnus agreed to loan Ponchko $175,500, to
be repaid over 30 years, at an annual interest rate of 7.875 per
cent. To secure the loan, First Magnus took a first and prior
mortgage on the property. The company recorded its mortgage on
August 8, 2002. In early August 2002, First Magnus sold Ponchko's loan to Countrywide Mortgage.
A few months later it became apparent that something was amiss.
After Ponchko failed to make his loan payments, Countrywide
Mortgage attempted to contact him, but to no avail. On January
14, 2003, an investigator hired by Countrywide Mortgage
discovered that Ponchko had never lived at 1216 S. Avers, and
that the City of Chicago had recently demolished the two-flat
building at that address. Since July 2001, City inspectors had
reported that the building was vacant, open and in disrepair. In
November 2001, they began leaving notices that the building was
subject to demolition. Countrywide Mortgage's investigator
appraised the value of the property as of May 5, 2002, the date
of MVP Appraisals' report, at $110,000-$85,000 less than Jordan's
appraisal. After Countrywide Mortgage initiated foreclosure, First
Magnus repurchased Ponchko's loan. Thereafter, First Magnus
learned that, contrary to the representation in the title
commitment, Dobrowski and Kielczyk did not own 1216 S. Avers at
the time of Ponchko's purchase. On November 22, 2001, Dobrowski
and Kielczyk had transferred ownership of the property to Heritage
Unlimited, Inc. (Heritage), through a quit claim deed, which it
recorded before Guarantee Title issued its title commitment.
First Magnus brought this action on November 12, 2003.
Subsequently, Alliance Title filed a third party complaint
seeking (1) a declaratory judgment that the Heritage deed was
invalid and (2) a quiet title in the name of Ponchko. The court
entered a default judgment against Heritage in an order dated
November 2, 2004. On December 20, 2004, the third party complaint
was dismissed pursuant to settlement with the remaining third
party defendants, and the court entered an order declaring the
Heritage deed invalid and First Magnus' mortgage a fully
enforceable lienhold interest. That led to the voluntary
dismissal of count VII, breach of the title policy. That policy absolves liability
if the title defect is cured, and it was. Count VII is dismissed.
Both Alliance Title and Guarantee Title (collectively
"defendants") move to dismiss the counts remaining against them.
Alliance Title brings a Rule 12(b)(6) motion to dismiss counts
VIII, IX, and X, and Guarantee Title brings a Rule 12(b)(6)
motion to dismiss count VIII. A Rule 12(b)(6) motion to dismiss
tests the sufficiency of the complaint, not the merits of the
case. Triad Assocs., Inc. v. Chicago Hous. Auth., 892 F.2d 583,
586 (7th Cir. 1989). In deciding a motion to dismiss, the
court must assume the truth of all well-pleaded allegations,
making all inferences in the plaintiff's favor. Sidney S. Arst
Co. v. Pipefitters Welfare Educ. Fund, 25 F.3d 417, 420 (7th
Cir. 1994). The court should dismiss a claim only if it appears
"beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief." Conley
v. Gibson, 355 U.S. 41, 45-46 (1957).
Count VIII of plaintiff's complaint alleges that defendants
falsely, recklessly and negligently misrepresented in their title
commitment that Dobrowski and Kielczyk held free and clear title
to 1216 S. Avers as of June 4, 2002. Relying on the information
in the title commitment, plaintiff, unaware that Heritage had
recorded a deed to the property with the Cook County Recorder of
Deeds on May 31, 2002, loaned Ponchko money to purchase the
property. Plaintiff seeks to recoup its losses from the loan
issued to Ponchko, basing its claim not on contract but on tort
concepts. Defendants argue that they cannot be held liable for
plaintiff's economic loss due to a negligent misrepresentation.
The Illinois Supreme Court's Moorman doctrine generally bars
plaintiffs from recovering solely economic losses through a tort
action. Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 86, 435 N.E.2d 443, 450 (Ill.
1982). In Moorman, the court held that the purchaser of a
defective grain storage tank could not bring tort claims against
the defendant manufacturer to recover its economic loss.
91 Ill.2d at 91, 435 N.E.2d at 453. The court reasoned that if it
allowed such suits, tort law would eventually envelop contract
law. Id. Nonetheless, the court did identify three exceptions
to the Moorman doctrine: "(1) where the plaintiff sustained
personal injury or property damage resulting from a tortious
event, i.e., a sudden or dangerous occurrence; (2) where
plaintiff's damages are proximately caused by a defendant's
intentional, false representation, i.e., fraud; and (3) where
the plaintiff's damages are proximately caused by a negligent
misrepresentation by a defendant in the business of supplying
information for the guidance of others in their business
transactions." Fireman's Fund Insurance Co. v. SEC Donohue,
Inc., 176 Ill.2d 160, 164, 679 N.E.2d 1197, 1199 (Ill. 1997)
(internal citations omitted); In re Chicago Flood Litigation,
176 Ill.2d 179, 199, 680 N.E.2d 265, 275 (Ill. 1997); Lyons v.
State Farm Fire and Casualty Co., 349 Ill.App.3d 404, 411,
811 N.E.2d 718, 725 (5th Dist. 2004).
Plaintiff does not dispute that it seeks damages only for
economic losses. However, it argues that the third exception to
the Moorman doctrine applies in this case because the defendant
title companies are in the business of supplying information for
the guidance of others in their business transactions. Defendants
reply that count VIII fails to allege that they are in the
business of supplying information and, more significantly, that
as a matter of law title insurers are not information providers
for purposes of this exception.
The Illinois Supreme Court has not addressed whether this
exception applies to title insurers accused of negligent
misrepresentation. Plaintiff and defendants rely on conflicting
cases in the Illinois appellate courts to support their
positions. First Magnus cites Notaro Homes, Inc. v. Chicago Title Insurance Co., 309 Ill.App.3d 246,
249, 722 N.E.2d 208, 211 (2d Dist. 2000), in which the plaintiff
purchaser sued the defendant title insurer for negligent
misrepresentation based on its failure to note in its title
commitment that a recorded city ordinance prohibited the
construction of a residential dwelling on the purchased property.
The appellate court reversed the lower court's dismissal of the
claim, stating that "the exception to Moorman does apply to
cases where a prospective purchaser orders a commitment for title
insurance and in reliance thereon enters into a business
transaction." 309 Ill.App.3d at 257, 722 N.E.2d at 216.
Defendants rely on the more recent ruling in First Midwest Bank,
N.A. v. Stewart Title Guaranty Co., 291 Ill. Dec. 158,
823 N.E.2d 168 (1st Dist. 2005). In First Midwest Bank, the
court acknowledged the holding in Notaro Homes, but then stated
that it found other precedent, where courts did not apply ...